After an initial slump in sales of a few models, the sector eventually ended the year growing by 14 percent
Immediately after the implementation of the Goods and Services Tax (GST) in July last year, the auto sector seemed to be buckling under the new system.
By October, passenger car sales were down 5.3 percent compared to the same month in 2016. Sales of hybrid cars slumped by 30 percent following a 13-20 percent hike in taxes as they were clubbed with luxury cars under GST. Sales of mid-size cars like Honda City fell 32 percent while Maruti Ciaz sales dipped 35 percent after cess was increased by 2 percent to 45 percent.
The GST itself was cheaper than the aggregate tax (VAT + excise duty) imposed earlier, which ranged from 30 percent to 40 percent varying from state to state and type of vehicle. But the 1-15 percent cess imposed over and above the GST led to a demand correction in cars and sports utility vehicles
However, the automotive sector still rebounded by the end the year with a growth of 14 percent last year. The boost primarily came from continued demand for sports utility vehicles (SUV) and commercial vehicles, both growing by about 20 percent.
For vehicle and auto parts manufacturers and their business partners, including raw material providers, smaller auto ancillary makers, sub-dealers and logistics providers, the switch to GST did pose some initial hiccups during the first three months.
These challenges pertained to filing of multiple returns in a month, blockages in working capital, technical issues with the process of filing it online and lack of aid from government agencies to help taxpayers file returns. Setting up of application service providers (ASP), however, helped entrepreneurs complete GST compliance in the easiest way.
Speaking to Moneycontrol, R C Bhargava, chairman of Maruti Suzuki, said, “We have had no problem right from the beginning till now. The transition to GST has been very smooth. As we go along, there are issues which needs to be smoothened out for improvement."
But not everyone had a similar experience.
While GST meant simplification of taxes as there was now only one tax to pay, it also brought about an increase in tax payout for tyre manufacturers by three percentage points.
Kumar Subbiah, chief financial officer, Ceat, said, "GST was a big challenge for many small dealers whose turnover was in the range of Rs 75 lakh. For a period of time, our sales got impacted in the month because many went in for GST registration at the last moment. From an average 24.5-25 percent VAT and excise duty earlier, it became 28 percent after GST. The GSTN server does not provide all the details, many such things we are doing manually."
There is a silver line though. GST has checked tyre importers who were escaping VAT payment but are now brought into the tax net. “It has brought some level playing field since GST is charged at the time of import, thus making it difficult for them to escape that," added Subbiah.
The logistics sector became one of the biggest beneficiaries of the GST rollout. With check-posts removed, truckers were able to deliver goods faster leading to quicker turnaround time.
As per CRISIL Research, trucks are plying an average 25 km more every day or around 325 km per day.
But that is still 20 percent lesser than the 400 km per day estimated before implementation of GST. An average truck in the United States runs 800 km per day.
GST also facilitated faster rollout of the E-way bill, which is an electronically generated document required under the GST regime for the movement of goods for a consignment value of more than Rs 50,000.
Vibhor Mittal, Head – Structured Finance Ratings, ICRA, said, "While these are still early days, the collection efficiency of 95 percent observed in the month of April 2018 indicates that there are no visible signs of any material disruption in the earnings of the truckers. In fact, the collection efficiency is almost 400 bps higher than what was seen in April 2017.”GST is expected to be a long-term positive for the transportation and logistics sector with consolidation of warehouses resulting in improved load availability and drop in vehicle transit time. Strong collections observed of around 98 percent in the second half of fiscal 2018 demonstrate that the borrowers have been largely able to adapt to the new tax regime, added the agency.